1

Danijela Despotović JEL: O30

2
Slobodan Cvetanović DOI: 10.5937/industrija1-9365
3
Vladimir Nedić UDC: 005.591.6
005.332:330.341.1
Original Scientific Paper

Analysis of innovativeness, as a
determinant of competitiveness of the
selected European countries

Article history:
Received: 28 October 2015
Sent for revision: 19 November 2015
Received in revised form: 5 February 2016
Accepted: 20 February 2016
Available online: 1 April 2016

Abstract: Starting from the premise that the phenomenon of innovation is at

the heart of modern economic policies, the focus of the paper is on the most
innovative and least innovative European countries, based on the values of
the 12th pillar of the Global Competitiveness Index (GCI) – Innovation. The
research centres on the analysis of the selected countries, observing them as
10 innovation leaders and 10 innovation learners of Europe in 2013. Cluster
analysis of the selected countries shows the depth of the gap between the
formed clusters of innovation leaders and innovation learners. By applying the
method of visualisation, the paper examines the components of the pillar
Innovation in respect of these countries. With regard to the clusters formed
and a big difference between them, the further course of the research
includes the time dimension and analyses the trend of innovativeness in the
studied groups of countries for the period 2006 - 2015. The time series graphs
for each of the clusters, according to indicators of Innovation, with average
values per cluster have been constructed, showing also the trend lines for
each of the clusters. Bearing in mind that the majority of macroeconomic time
series exhibits time dependence, dynamic relations between them are
analysed using the VAR model. Statistically significant interdependence is
established between the observed series. Furthermore, through simple linear
regression, the impact of innovativeness on GDP per capita of the observed
group of countries is examined. It can be concluded that, in addition to the
pronounced gap between the achieved levels of innovativeness of the

1
University of Kragujevac, Faculty of Economics, Serbia, ddespotovic@ kg.ac.rs
2
University of Niš, Faculty of Economics, Serbia
3
University of Kragujevac, Faculty of Philology and arts, Serbia

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observed groups of countries, there is a positive impact of innovativeness on

the achieved level of GDP per capita, expressed in the purchasing power of
the domestic currency on the part of the group of innovation “learners” in the
reporting time period.

Keywords: innovation, innovativeness, divergence, innovation learners,

innovation leaders, Europe.

Analiza inovativnosti kao determinante konkurentnosti

selektovanih zemalja Evrope
Apstrakt: Polazeći od pretpostavke da je fenomen inovativnosti u srži
savremene ekonomske politike, u radu se posmatraju najinovativnije i
najmanje inovativne evropske zemlje, a na osnovu vrednosti 12. stuba
Indeksa globalne konkurentnosti (IGK) - Inovacije. Istraživanje je bazirano na
analizi selektovanih 10 inovacionih lidera i 10 inovacionih “početnika” zemalja
Evrope u 2013. Putem klaster analize izabranih zemalja na osnovu sličnosti
inovativnih performansi, prikazana je dubina jaza između formiranih klastera
inovacionih lidera i inovacionih “početnika”. Primenom metode vizuelizacije
sagledavane su komponente stuba Inovacije analiziranih grupa zemalja. U
dalji tok istraživanja, uključena je vemenska dimenzija i analiziran je trend
inovativnosti posmatranih grupa zemalja u periodu od 2006 – 2015. godine.
Grafikoni vremenskih serija, sa prosečnim vrednostima inovativnosti,
pokazuju trend linije za svaki od klastera. Imajući u vidu da najveći broj
makroekonomskih vremenskih serija ispoljava vremensku zavisnost,
dinamički odnosi između njih analizirani su primenom VAR modela. Izmedju
posmatranih serija ustanovljena je statisticki znacajna medjuzavisnost.
Dodatno je, putem proste linearne regresije, ispitivan uticaj inovativnosti na
GDP per capita posmatranih grupa zemalja. Došlo se do zaključka da pored
izraženog jaza izmedju dostignutih nivoa inovativnosti posmatranih grupa
zemalja postoji i pozitivan uticaj inovativnosti na dostignuti nivo GDP per
capita izraženog u kupovnoj moći domaće valute kod grupe inovacionih
“početnika” u posmatranom vremenskom periodu.
Ključne reči: inovacija, inovativnost, divergencija, inovacioni “početnici”,
inovacioni lideri, Evropa

1. Introduction

Innovation brings new products, processes, services, and functionality into the
production, the market, and the society, which consumers and organisations
find useful and valuable.

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It is most commonly observed at the level of products or processes, whereby

innovative product meets the needs of consumers, while process innovation
improves organisational efficiency and effectiveness (Smith, 2010).
Innovativeness is associated with creativity and converting new ideas into
tangible goods and services through inventions, research, and development
of new products. It turned out, however, that the improvement of
innovativeness of some countries, in addition to research and development
activities, depends on a number of other factors (Dodgston, Gann & Salter,
2008; Cvetanovic et al., 2014; Nedic, Cvetanović & Despotovic, 2014). A
number of innovations are the result of improved methods of work
organisation in companies and their interaction with related companies and
the academic community (Freeman, 1987; 1995; 2002; 2008).
Innovation is a key driver of company success (Rothwell, 1994; Zahra et al.,
1999; Bolwijn, & Kump, 1990; Jobber, 2001). In modern business conditions,
creativity is becoming a key dimension of innovative thinking, so that only
those companies that are able to explicitly manage their own creativity
through innovation can take a leadership position on the increasingly
demanding world market (Amidon, 2003; Zubović, 2012).
Innovation is the key to economic growth, increase in employment, meaning
that it is the most important determinant of sustainable growth of living
standard (Cimoli & Dosi, 1995; Despotovic, Cvetanović & Nedić, 2014). When
creating innovation in some country, innovators support processes, develop
and exchange information, knowledge, experience, and other resources
(Lundvall (ed), 1992; Edquist (ed) 1997).
Under such circumstances, networks are becoming increasingly important in
the process of creating innovation, which is logical given that the knowledge
that is much faster generated through innovation stands for a prerequisite of a
better position of the company in relation to the competition (Fagerberg,
Mowery & Nelson, 2004). Moreover, complexes of innovation and
innovativeness are increasingly pronounced at the epicenter of the
technological and economic sovereignty of countries globally, starting with the
industrial revolution in the 18th century until the present day (Atkinson & Ezel,
2012).
Considering the most efficient ways out of the latest economic crisis that the
USA and Europe could take, Foray and Phelps point out that the promotion of
innovation is the only appropriate method for their return to the path of long-
term sustainable growth (Foray & Phelps, 2010). Porter and Rivkin generally
accept this view by noting that the strategy of improving innovativeness in the
United States assumes the consensus of private and public sector in terms of
the responsibility for the research and technological development and
incomparably stronger involvement of small and medium entrepreneurs in the
process (Porter & Rivkin, 2012). Thus, the new US strategy linked to

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innovation aims to regain leadership of US in the basic research, by investing

in human capital and stimulating entrepreneurship based on innovation.
According to the 2009 Panel on Future EU Innovation Policy, government
policy plays a major role in raising innovativeness of the economy. Innovation
policy should be designed to support individual economic actors to develop
new skills, knowledge, and demand channels (OECD, 2009).

2. Subject and research hypotheses

The subject of research in the paper deals is the complex of innovativeness

(12th pillar of the GCI) of European countries in the period 2006-2015. The
main problem to be studied can be reduced to the question: are there major
differences in innovativeness and is it realistic to expect convergence of
European countries in respect of innovativeness in the near future? In the
context of this issue, the subject of research involves the identification of the
depth of the gap between the two groups of European countries: innovation
leaders and innovation learners. Recognition of an area where such
significant differences in the expressed level of innovativeness come from is
particularly important for overcoming the existing gap. The following
hypotheses have been set in line with the defined research objective:
H1. There is a pronounced gap in respect of innovativeness among the
European countries, and it is, among other things, the result of different
approaches to innovation policy, as an increasingly important component of
economic policy.
H2 There is significant time interdependence between the achieved levels of
innovativeness of EU innovation leaders and EU innovation learners.
H3. Improving innovativeness, with respect to the clause ceteris paribus, can
have a significant impact on the achieved level of GDP per capita (PPP) of
innovation learners.

3. Research methodology

A special aspect of the imperative of improving innovativeness that

companies and countries are facing relates to the quantification of this
process. Measuring innovativeness is significant because the results are the
basis for defining development policies and are an essential element of their
implementation. In order for a development policy to be successful and
effective, its effects must be monitored and evaluated, in order to, if needed,
make the necessary adjustments and changes in individual segments.

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The traditional approach to measuring innovativeness of countries is based on

parameters such as the number of patents and published papers in scientific
journals per million inhabitants, that is, investment in research and
development, and so on (Greenhalgh & Rogers, 2010). However, in parallel
with the affirmation of the view that innovation is a multidimensional
phenomenon, for evaluating the achieved innovativeness of some countries,
the so-called composite indices are more frequently used . Their use in a
number of different annual reports points to the ranking of countries on the
basis of various innovative features. Since there are plenty of definitions of
innovativeness of organisations and countries, it is logical that there are a
number of different approaches to its measurement. This is related to the
possibility of finding studies that deal with similar subjects, which are mutually
different in respect of the results obtained. Furthermore, analyses of
innovativeness primarily focus on the innovative leaders or countries
characterised by the biggest change of intensity of improvement of
innovativeness, while countries with modest innovative performance are given
far less attention.
Many countries performed the analysis and evaluation of their own innovative
performance for their needs. The compromise in respect of the comparability
of data, relating to the necessity of respecting the specifics of individual
national innovation systems and innovation policies, must often be made.
Studies of this type usually include three different levels: analysis and
evaluation of national innovation programmes, analysis and evaluation of
innovative institutions, and analysis and evaluation of institutional
programmes, institutions, and development of a competitive environment (EU
Innovation, 2005) Numerous studies focus on econometric determinants of
innovation activities (Boia, Conceição & Santos, 2003), as well as
consideration of the overall effects of subsidizing innovation activity (Hujer &
Radic, 2005; Takalo, Tanayama & Toivanen, 2008).
This paper relies on the value of the 12th pillar of the Global Competitiveness
Index (GCI) of the World Economic Forum, Innovation, as an indicator of
innovativeness (Fig.1). Therefore, innovativeness presented in this manner is
one of the twelve components of the global competitiveness index, but is itself
made up of the following elements: Capacity for innovation, Quality of
scientific research institutions, company spending on E & D, University-
industry collaboration in R & D, Government procurement of advanced tech
products and engineers, Availability of scientists and engineers and PCT
patents applications/million population (The Global Competitiveness Report
2013-2014, p. 51).

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Figure 1: Composition of 12. GCI pillars

Source: Modified according to: The Global Competitiveness Report 2013-2014, p. 9

In order to get acceptable answers to the research question, or test the

established hypotheses, the paper relies on the following analytical methods:
 Cluster analysis, based on the parameters of innovativeness, in order to
explain the depth of the gap between the European countries – innovation
leaders and innovation learners.
 Time graph of innovativeness of ten leading and ten lagging European
countries in respect of innovativeness in the period 2006-2015, in order to
identify trend of innovativeness of the observed groups of countries.
 VAR model, given that the majority of macroeconomic time series exhibits
time dependence, which requires the formulation of a model to allow for
the analysis of dynamic relationships between variables.
 Diagrams of correlation between innovativeness and GDP per capita in
ten leading and ten lagging European countries in respect of
innovativeness in the period 2006-2013.

4. Results and discussion

Based on the 2013 data on the values of the 12th pillar of the GCI, Innovation,
15 most innovative European countries (innovation leaders) and 15 least
innovative European countries (innovation learners) in 2013 were initially
selected.

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Figure 2. 12th pillar of the GCI, GDP pc, and GCI ranking of European leaders
in 2013

Source: Authors, with reference to: The Global Competitiveness Report 2013-2014, World
Economic Forum.

The data contained in Fig. 2 clearly show that the most innovative economies
are at the same time the most economically developed countries. Finland,
Switzerland, Germany, Sweden, and the Netherlands are leaders in
innovativeness among the European countries. Fifteen European innovation
leaders are not big countries, in terms of the territory and the population.
Moreover, most of them are relatively small countries (with the exception of
Germany, France, and the UK). Each of these countries has less than 0.5
percent of the world population. It can be said that in addition to the old
European innovation leaders (Central Europe: Switzerland, Germany, the
Netherlands, and Northern Europe: Sweden, Denmark, Finland), in recent
times, Ireland, Iceland, and Portugal have found themselves in the group of
European top 15 innovative economies. Moreover, Finland, Sweden,
Denmark, and Ireland have in many areas reached or even overcome the
level of innovative capability of major European countries, especially Britain,
France, and Italy, whose economic situation was much more favourable in the
early 1980s than it is today (Atkinson & Ezell, 2012).
In the group of European innovation learners in 2013, alongside Ukraine,
Greece, Russian Federation, Cyprus, and Turkey, there are former socialist

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countries of which one number today belongs to the EU28 (Poland, Latvia,
Slovakia, Bulgaria, Romania, and Croatia), as well as five Western Balkan
countries (Albania, Serbia, Macedonia, Bosnia and Herzegovina,
Montenegro). All of them, with the exception of Poland and Turkey to some
extent, are also extremely behind other European countries based on the
level of competitiveness (Fig. 3).

Figure 3. 12th pillar of the GCI, GDP pc, and GCI ranking of European
learners in 2013

Source: Authors, with reference to: The Global Competitiveness Report 2013-2014, World
Economic Forum.

In the second step, the selected countries were classified into 10 leading and
10 lagging countries (Fig. 4). After the decision to perform 10+10 analysis, the
last five countries (Luxembourg, France, Ireland, Iceland, and Portugal) were
excluded from the top 15 list.
Ten most innovative European countries were in the third stage of
development (innovation-driven stage). From the list of 15 lagging European
countries in terms of innovativeness, Russian Federation, Ukraine, and
Turkey, as major economies, and Montenegro and Cyprus, as micro states,
were not taken into account (Schwab, 2011; Dutta, 2012). Six countries from

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the list of least innovative European economies (Albania, Bosnia and

Herzegovina, Bulgaria, Poland, Romania, and Serbia) in 2013 were found in
the efficiency-driven stage, Croatia, Slovakia, and Poland were in transition
from stage 2 to stage 3, while Greece was in the innovation-driven stage of
development (The Global Competitiveness Report 2013-2014).

Figure 4. Map of countries

4.1 Cluster analysis based on the parameters of innovativeness

For the purpose of classification of the selected countries into two or more
groups, based on similarities in innovative performance, cluster analysis of the
selected countries was carried out. The intention was to use these
multivariate techniques to show the depth of the gap between the formed
clusters of European innovation leaders and innovation learners.

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Figure 5. Dendrogram of cluster analysis based on the parameters of

innovativeness

Source: Authors, with reference to: The Global Competitiveness Report 2013-2014, World
Economic Forum.

In the process of grouping the 20 selected countries (Fig. 5 on the left), we

used a bottom-up method of agglomerative hierarchical clustering. In the
initial step, each country was treated as a separate cluster. Their grouping
into pairs of clusters, based on similarities in terms of the values of the
observed variables, is the result of all subsequent iterations until the observed
entities became consolidated within a single cluster. If the level of difference
less than 5 is taken as a possible cross-section of the dendrogram, three
clusters of observed countries are clearly identified. The first two clusters
include 10 innovation learners, i.e. 50% of the surveyed countries.
Specifically, the first cluster consists of four countries from the group of
innovation leaders (Germany, Sweden, Finland, and Switzerland), while the
second cluster involves the remaining six countries, innovative leaders (UK,
Belgium, the Netherlands, Denmark, Austria, and Norway). The third cluster is
composed of all ten countries from the group of innovative learners. At the
level of difference of more than 5, two clusters of innovation leaders are
merged into one, so that, finally, the two clusters of the observed countries
are formed: leaders and learners (Fig.5 on the right). Between the formed
clusters there is a big discrepancy, because only at the level of difference of
more than 90, their grouping within a single cluster can be ensured. This
supports the hypothesis H1.

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Among the countries within the clusters, there are extremely small differences
(Fig. 6).

Figure 6. Dendrogram of cluster analysis based on the parameters of

innovativeness for innovative learners and innovative leaders

Source: Authors, with reference to: The Global Competitiveness Report 2013-2014, World
Economic Forum.

Due to this fact, the next step involves a simple comparison of the
characteristics of innovativeness of the selected groups of European
countries.

4.2 Comparative analysis based on the parameters of

innovativeness

In order to see where such significant differences in the expressed level of

innovativeness come from, Fig. 7 gives a comparative overview of the
innovative performance of groups of countries, innovation leaders, on the one
hand, and the innovation learners, on the other hand. Innovative performance
of the observed countries is determined on the basis of the components of the
twelfth column of the GCI, Innovation: Capacity for innovation, Quality of
scientific research institutions, Company spending on E&D, University-
industry collaboration in R&D, Government procurement of advanced tech
products and engineers, Availability of scientists and engineers and PCT
patents applications/million population. Fig. 7 provides a comparison by
elements of the 12th pillar except that the parameter 12.07 PCT - patents

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applications / million population is omitted since it is not comparable with other

parameters of the Innovation components.

Figure 7. Comparison by elements of the 12th pillar of the GCI in 2013

Source: Authors, with reference to: The Global Competitiveness Report 2013-2014, World
Economic Forum

th
It is obvious that the gap in terms of the values of the 12 pillar, Innovation,
among the selected groups of countries in 2013, is high. The largest
discrepancies are related to University-industry collaboration in R&D and
Quality of scientific research institutions, and the least in relation to Availability
of scientists and engineers.
It can be noted that most European innovation leaders have shaped their
national innovation strategies. Finland, for example, has a national innovation
authority, Tekes, founded in 1983. VINNOVA is Sweden’s national innovation
authority, which began operation in 2003. Denmark established a National
Agency for Science, Technology, and Innovation in 2006. The Netherlands
has the agency Senter Novem, which was put into operation in 2004. The
Norwegian national authority, Innovation Norge, was established in 2004.
Ireland implements its innovation strategy through Forfás, founded in 1994
(Atkinson & Ezel, 2012).
Innovation policy should be oriented towards general and social challenges.
Center of attention should be sophisticated innovation, and not only
production of high technology products. The new model of cooperation
management in the field of international science, technology and innovation

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presupposes the adoption of institutional arrangements, and the affirmation of

financing model in the function of overcoming the global challenges and
enable the widest diffusion of innovations. In particular, must work to
accelerate the mobilization of international innovations and changes in the
areas of national and regional innovation policy instruments. (Ministerial report
on the OECD Innovation Strategy, 2010). The results of the thus-far
conducted analysis indicate the causes and the situation at a given point in
time. As the process of implementation of innovation is dynamic by nature, it
is necessary to observe the selected groups of countries, from the standpoint
of innovativeness, by introducing the time dimension.

4.3 Time diagrams of innovativeness - 12th pillar of the GCI

With regard to the formed clusters and a big established difference between
them, the further course of the research includes the time dimension, and
analyses the trend of innovativeness in the observed groups of countries
(data available for a time period of ten years). Time series graphs for each of
th
the clusters are designed, based on the indicators of Innovation (12 pillar)
with average values per cluster, showing also the trend lines for each of the
clusters (Fig. 8).

Figure 8. Time diagram of the 12th pillar of the GCI for the selected countries
in the period 2006-2015

Source: Authors, with reference to: The Global Competitiveness Report 2006-2007; 2007-2008;
2008-2009; 2009-2010; 2010-2011; 2011-2012; 2012-2013; 2013-2014, 2014-2015, 2015-2016,
World Economic Forum

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The estimated models of the trend, defined for the first and the second cluster
and represented in Fig. 8, indicate that innovativeness within the cluster
innovation leaders is at a much higher level in relation to the cluster
innovation learners, as has been shown by the cluster analysis. This also
confirms the hypothesis H1. However, as can be seen, the trend of
innovativeness within the cluster per years is not pronounced, so that
graphical representation corresponds to almost a straight line, at different
levels. It can be visually concluded that if similar trends continue in the future,
it is not realistic to expect that ceteris paribus the convergence of these lines
will occur, i.e. it is not realistic to expect that the gap among the selected
groups of countries, in terms of the level of innovativeness, will be reduced.
To check the existence of significant correlation between the observed series,
it is first necessary to test their stationarity. By applying the unit root test, it is
examined whether the time series are stationary or they have unit roots. For
these purposes, Dickey-Fuller test is used, and the results are given in Tables
1 and 2.

Table 1 Dickey-Fuller test for the series LEAD

Null Hypothesis: LEAD has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=1)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -1.337992 0.5624
Test critical values: 1% level -4.420595
5% level -3.259808
10% level -2.771129

Table 2 Dickey-Fuller test for the series LEARN

Null Hypothesis: LEARN has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=1)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -0.863563 0.7426
Test critical values: 1% level -4.582648
5% level -3.320969
10% level -2.801384

Based on the results of Dickey-Fuller test, as expected, it is found that both

series have a unit root, i.e. that they are non-stationary.

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In this case, simple regression analysis is not suitable, which implies the need
for a more complex analysis, requiring the formulation of VAR model (to allow
for the analysis of dynamic relationships between variables).
VAR model is a framework for empirical analysis of mutual relations between
the two observed time series: cluster of innovation leaders (LEAD) and cluster
of innovation learners (LEARN). Time series are observed in the period 2006-
2015. The analysis is conducted using the Eviews 7 software package.
In order to test the existence of significant correlation between the observed
series (LEAD and LEARN), an empirical analysis resolves the dilemma of
whether these series are cointegrated time series, whether there is a
unidirectional causality between these series, and whether it is mutual. The
results in Tables 3 and 4 indicate that these are cointegrated time series, and,
therefore, there is a long-term correlation between LEAD and LEARN. As
these two series are cointegrated, the corresponding VAR model is tested
below.

Table 3 Cointegration test

Sample (adjusted): 2008 2015
Included observations: 8 after adjustments
Trend assumption: Linear deterministic trend
Series: LEAD LEARN
Lags interval (in first differences): 1 to 1
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Trace 0.05
No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.909598 25.55515 15.49471 0.0011
At most 1 * 0.546565 6.327232 3.841466 0.0119
Trace test indicates 2 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Table 4 Cointegration test

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized Trace 0.05
No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.909598 19.22792 14.26460 0.0076
At most 1 * 0.546565 6.327232 3.841466 0.0119
Max-eigenvalue test indicates 2 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

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In the process of selection of an appropriate model, VAR model of the second

order is a priori selected. Data related to this model is given in Table 5.

Table 5 Results of the testing of VAR(2) model (LEAD and LEARN)

Vector Autoregression Estimates
Sample (adjusted): 2008 2015
Included observations: 8 after adjustments
Standard errors in ( ) & t-statistics in [ ]
LEARN LEAD
LEARN(-1) 1.023191 4.221527
(0.18369) (1.40223)
[ 5.57010] [ 3.01058]
LEARN(-2) -0.480425 -3.174213
(0.17990) (1.37324)
[-2.67058] [-2.31148]
LEAD(-1) 0.219599 0.890747
(0.03786) (0.28898)
[ 5.80079] [ 3.08237]
LEAD(-2) 0.044881 -1.494448
(0.06632) (0.50622)
[ 0.67679] [-2.95217]
C 0.032996 5.014615
(0.33647) (2.56849)
[ 0.09806] [ 1.95236]
R-squared 0.991495 0.859417
Adj. R-squared 0.980156 0.671974

Bearing in mind the results of Table 6, it is found that the use of VAR (2)
model is justified, and that 2 is the optimal number of lags. Specifically, all the
proposed criteria suggest the same thing – 2 as the optimal number of lags.
Based on the tested VAR (2) model, it is further examined whether there is
simultaneous interdependence between LEAD and LEARN, i.e. whether
LEAD causes LEARN, on the one hand, and whether LEARN causes LEAD,
on the other hand. Application of Granger causality tests with the selected
VAR model clearly shows that, between LEAD and LEARN, there is Granger
causality in both directions (Table 7). This confirms the statistical significance
of Hypothesis 2.

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Table 6 Tests for the selection of the optimal number of lags

VAR Lag Order Selection Criteria

Endogenous variables: LEARN LEAD
Exogenous variables: C
Sample: 2006 2015
Included observations: 8
Lag LogL LR FPE AIC SC HQ
0 16.59683 NA 8.94e-05 -3.649208 -3.629348 -3.783159
1 28.37994 14.72889 1.38e-05 -5.594986 -5.535404 -5.996837
2 41.96311 10.18737* 1.79e-06* -7.990777* -7.891475* -8.660529*
* indicates lag order selected by the criterion
LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion

Table 7 Results of the Granger causality test (LEAD and LEARN)

VAR Granger Causality/Block Exogeneity Wald Tests
Sample: 2006 2015
Included observations: 8
Dependent variable: LEARN
Excluded Chi-sq df Prob.
LEAD 43.51228 2 0.0000
All 43.51228 2 0.0000
Dependent variable: LEAD
Excluded Chi-sq df Prob.
LEARN 9.227272 2 0.0099
All 9.227272 2 0.0099

The existence of causality between LEAD and LEARN is clearly seen with
impulse response functions (Figure 9). LEARN response to LEAD one-
standard-deviation shock throughout the three-year period will be positive,
with an upward trend, during the observed period. LEAD response to LEARN
standard-deviation in the first year will be negative, and in other years it will be
positive with the upward trend.

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Figure 9 Impulse response function

Between the observed series (LEARN and LEAD), statistically significant

interdependence is established. The above-mentioned interdependence is
unbalanced in the sense that EU learners’ response to changes in EU
leaders’ innovativeness is positive with clearly pronounced upward trend,
while the impact of changes in their innovativeness on EU leaders is of
variable character (in the initial period of prediction, it is negative prediction,
and later positive, with the upward trend of variable slope). With a high level of
abstraction, this can be seen as a potential benefit that EU learners can get
from their neighbouring EU leaders. This potential can be transformed into
real innovation capacity of EU learners, through activities that must be
accompanied by strategic management, as well as continuous fine
adjustment, and the harmonisation of national, regional, and even EU
innovation policies.

4.4. The interdependence of innovativeness and GDP per capita

Fig. 10 presents the scatter diagrams and linear form of interdependence

between innovativeness and GDP per capita for the examined group of
countries, which contain additional information about the competitiveness,
expressed by the size of the balloon (where the used pairs of data relate to
the period of eight years).

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Figure 10. Scatter diagram and linear form of interdependence of 12th pillar of
the GCI(innovation) and GDP per capita for the examined groups of countries
for the period 2006-2013

Source: Authors, with reference to: The Global Competitiveness Report 2006-2007; 2007-2008;
2008-2009; 2009-2010; 2010-2011; 2011-2012; 2012-2013; 2013-2014, World Economic Forum

th
For a group of innovative leaders, the interdependence of variables 12 pillar
Innovation and GDP per capita, PPP expressed through simple linear
correlation coefficient, r = - 0.0556, is insignificant correlation in terms of
intensity. From the aspect of direction, it is the inverse correlation.
th
For a group of innovative learners, the interdependence of variables 12 pillar
Innovation and GDP per capita, expressed in purchasing power of the
domestic currency and shown through simple linear correlation coefficient, r =
0.485, is significant correlation in terms of intensity. From the aspect of
direction, it is a direct correlation.
Without going deeper into testing the statistical significance of the linear form
of interdependence, in the analysis below, due to the extremely small value of
the coefficient of determination for the first group of countries, the testing of
the hypothesis on the significance of linear interdependence was confirmed
only for the second group of countries (Table 8).

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Table 8. Summary of single regression analysis ((1) EU leaders, (2) EU

learners countries)
Dependent variable:
(y1) – EU leaders (y2) – EU learners
***
x1 -1,998.104 11,886.450
(4,089.092) (2,444.038)
*** ***
Constant 62,737.850 -25,280.550
(20,898.000) (7,296.217)
Observations 80 79
2
R 0.003 0.235
2
Adjusted R -0.010 0.225
Residual Std. Error 14,753.570 (df = 78) 6,339.635 (df = 77)
***
F Statistic 0.239 (df = 1; 78) 23.653 (df = 1; 77)
* ** ***
Note: p<0.1; p<0.05; p<0.01
Source: Authors, with reference to: The Global Competitiveness Report 2006-2007; 2007-2008;
2008-2009; 2009-2010; 2010-2011; 2011-2012; 2012-2013; 2013-2014, World Economic Forum

Testing the hypothesis on linear interdependence of the studied variables

gives the value of the test statistics of 23.653. With a probability of the level of
test significance of 0.01 it is concluded that there is a linear interdependence
between the observed variables that is statistically significant. Therefore,
abstracting the importance of other factors, it can be concluded that for a
group of innovation learners, innovativeness is an important factor of
economic growth. This means that through intensification of investment in
research and development, especially by the private sector, raising the quality
of scientific research institutions, particularly those that support the creation
and mass diffusion of new technologies, as well as wider collaboration
between universities and industry in the field of research and development,
innovation learners can expect acceleration of innovativeness, which will,
ceteris paribus, have a positive impact on the level of pc GDP, expressed by
PPP. This supports the hypothesis H3.

5. Conclusion

The results of cluster analysis, based on the parameters of innovativeness,

confirm the existence of a deep gap between European innovation leaders
and innovation learners in 2013. The most striking divergence of the observed
groups of countries relates to the elements of innovativeness University-

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industry collaboration in R&D and Quality of scientific research institutions,

and the least in respect of Availability of scientists and engineers and PCT
patents applications/million population. Assuming that similar tendencies in
innovativeness of the economy of the observed clusters of countries continue,
the conclusion is that their convergence in terms of innovativeness should not
be expected.
The detected intensity and character of interdependence of time series, EU
leaders’ innovativeness and EU learners’ innovativeness, indicate a positive
potential which less developed EU economies could use. In this way, EU
learners would bring their innovation capacity closer to innovatively advanced
EU neighbours. Of course, as already mentioned, this must be accompanied
by strategic management, as well as continuous fine adjustment, and the
harmonisation of national, regional, and even EU innovation policies.
For a group of innovative leaders, the interdependence of variables Innovation
and GDP per capita, expressed in purchasing power of the domestic currency
and shown through simple linear correlation coefficient is insignificant
correlation in terms of intensity. From the aspect of direction, it is the inverse
correlation. In contrast, in respect of a group of innovative learners, in terms of
intensity, there is a significant correlation. From the aspect of direction, it is a
direct correlation. Therefore, abstracting the importance of other factors, the
conclusion is that for a group of innovation learners, improving innovativeness
stands for an important assumption of growth of GDP pc in the future period.
This also points to the strategic importance of improving innovativeness and
implementation of an efficient innovation policy, as an increasingly important
component of the economic policies of these countries.

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